In the accounts of July 21-22 meeting, ECB said a “large majority” of the council members supported the forward guidance proposal, which was “widely seen as providing a fine balance between greater emphasis on outcome-based elements in the forward guidance and a more flexible, forward-looking perspective.”

However, “a few members upheld their reservations, as the amended formulation did not sufficiently address their concerns.”. This related in particular to the “implied likelihood and persistence of overshooting, and being seen as promising to keep interest rates at their present or lower levels for a very long time period without an explicit escape clause.”

ECB also said, the new forward guidance “underscored the Governing Council’s commitment to achieving its new inflation target”. It indicated that ECB would “wait until it was confident about the path of inflation before raising the key policy rates.” Nevertheless, the guidance is “not a rule” but “an indication to financial markets and the broader public” for aligning their inflation expectations.

Full accounts here.

ECB President Christine Lagarde told France Inter radio inflation will “stabilize” and “ease gradually in the course of 2022. “.

“The cycle of the economic recovery in the U.S. is ahead of that in Europe. We thus have every reason not to act as rapidly and as brutally that one can imagine the Fed would do,” she said.

Nevertheless, she added, “we have started to react and we obviously are standing ready, to react by monetary policy measures if the figures, the data, the facts demand it.”

ECB Governing Council member Peter Kazimir said, “An inflation drop in two consecutive months is good news. But it is not a reason to slow the tempo of raising interest rates… I am convinced that we need to deliver two more hikes by 50 basis points.”

“For me, the most important is core inflation trend,” Kazimir said. “We are halfway through. If it were up to me, I would enter summer holidays with the tightening cycle completed. But don’t ask me today, how high we will go with the rates, and how long will they need to stay there to tame inflation as needed.”

ECB Vice President Luis de Guindos said that policy makers need to take market expectations with a “punch of salt”. He emphasized that “Our monetary policy is data dependent, not market dependent: indications from market expectations cannot replace our policy judgment”.

He also added, “another way of robustifying our analysis is to look for expectations beyond those expressed in financial market prices.”